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Annualised Hours: A Complete HR Guide

2 min read
annualised hours

Annualised hours are a specific kind of work contract that calculates the payment of an employee based on a whole year of work, rather than weekly or monthly payments. These types of contracts are put into place under the arrangement that an employee will work a specific number of hours a year, which can differ from month to month or even week to week.

These annualised hours give the employer flexibility over the amount of work they require from an employee throughout the year.

In this article, we are going to explain what annualised hours are, the benefits for employers and how they work.

  1. What are Annualised Hours?
  2. What are the Benefits for Employers?
  3. What are the Disadvantages?
  4. How to Calculate Annualised Hours
  5. Employee time tracking Software

What are Annualised Hours?

Unlike zero-hour contracts, annualised hours provide greater flexibility of working hours than a standard work contract with an agreement of a minimum number of overall hours.

The employee has to work a certain number of hours over the year but they are able to keep some flexibility about when they can and can’t work. They are sometimes referred to as ‘core hours’ which the employee regularly works and the rest of the hours are more flexible, for example when when there’s extra demand at work over peak seasons etc.

Industries Where Annualised Hours Are Most Present:

  • Health and social care
  • Education
  • Wholesale
  • Retail
  • Admin
  • Manufacturing

What are the Benefits for Employers?

  • Helps you to budget better
  • Reduces the need for temporary employees.
  • It’s more cost-effective than paying employees overtime
  • Reduced absences
  • Promotes better use of resources
  • Improved efficiency, flexibility and productivity

What are the Disadvantages?

  • Accurately calculating the estimated workloads and working times can be difficult, especially in advance
  • Some workshifts are unsociable, such as over weekends or bank holidays – therefore they are difficult to cover
  • You may end up paying the contracted employees for working hours that they may not end up working
  • It can be hard to keep in touch with the employees over periods when they are not working

How to Calculate Annualised Hours

The most straightforward way to calculate annual hours is to take the employees yearly contracted hours and deduct any annual leave entitlements, amounting to 20 days and then deduct any UK bank holidays, which is a total of 8 days.

In addition to this, you will need to calculate the annualised hours for holiday entitlement. This is similar to those who follow a standard working model. The only difference is that your holidays are divided into hours and not days.


What Should an Annualised Hours Contract Include?

When starting an employee on this type of contract, it’s extremely important to have a new employment contract written out to cover the following topics:

Creating a clear and indept employment contract will help you to avoid any legal issues as an employer.


Overall, there are many benefits of implementing this type of contract into your business. And with an HR software tool, you can easily track your employee hours and manage shifts. Sign up for a demo today.


Related video: A Guide to Employee Onboarding: Best Practices to Improve The Employee Onboarding Process in 2020. 

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